In brief

• Introduced on 24 July 2025, the Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025 (Bill) seeks to prohibit reductions to penalty and overtime rates in modern awards, to ensure no employee is worse off.
• The Bill signals increased scrutiny on pay structures for award-covered employees.
• The Fair Work Ombudsman (FWO) continues to actively enforce workplace laws, including compliance with modern awards, and recovered AU$1.5 billion in back-payments to workers from FY22 to FY24. Ahead of potential further legislative reforms, it is timely for employers to review their payroll compliance and address any inadvertent non-compliance.

Why has the Bill been introduced?

The Bill aims to fulfil Labor’s election promise to legislate protections for penalty rates in modern awards and is also a response to recent employer applications to the Fair Work Commission (FWC) that propose ‘rolled up’ pay rates in the retail, clerical and banking sectors.

What is in the Bill?

The Bill introduces new section 135A into the Fair Work Act 2009 (Cth) (FW Act), establishing a new principle:

The FWC, when making, varying or revoking modern awards, must ensure that:

• penalty rates or overtime rates are not reduced, and
• modern awards do not include terms substituting penalty rates or overtime rates to reduce an employee’s remuneration.

Effectively, this would mean:

1. penalty and overtime rates already set out in modern awards cannot be reduced, and
2. any term that substitutes penalty or overtime rates, such as a ‘rolled up’ rate or an ‘exemption’ rate, cannot be included in a modern award if there is evidence that one or more employees would be worse off.

‘Rolled up’ rates absorb penalty and overtime rates into a single rate, which can be administratively simpler for employers to manage, but risks undercompensating employees whose hours of work are irregular or unpredictable. Similarly, ‘exemption rates’ exclude anyone who earns above a specified rate from some or all of the terms of a modern award (such as terms dealing with penalty rates and overtime).

If enacted, the new principle would operate alongside the existing ‘modern awards objective’, which requires the FWC to consider the need for additional remuneration for employees who work overtime, unsocial, irregular or unpredictable hours, weekends or public holidays, and shifts.

What are the impacts for employers?

The Minister for Employment and Workplace Relations has described the Bill as protecting ‘crucial entitlements’ for ‘around 2.6 million modern award-reliant workers’.¹

The Bill does not impact the framework for making individual flexibility arrangements under modern awards. It also does not constrain the FWC’s power to vary modern awards to remove ambiguity or uncertainty or correct errors.

Importantly, the Bill does not impact the making of enterprise agreements, which remain a key mechanism for negotiating entitlements, including penalty and overtime rates, subject to the FWC’s approval and the requirements of the FW Act.

The Bill, if enacted, would affect the current award variation applications in the retail, clerical and banking sectors. It would also impact all future modern award variation applications, across all sectors.

The FWO continues to actively enforce compliance with workplace laws, including compliance with modern awards. The FWO’s latest annual report reveals that it recovered AU$473 million for 160,000 underpaid workers in FY24, contributing to total back-payments of AU$1.5 billion from FY22 to FY24.² The FWO also secured AU$21.2 million in court-ordered penalties in FY24.³

Employers should be aware that the FWO continues to target ‘high risk sectors’,⁴ including aged care services, agriculture, building and construction, disability support services, fast food, restaurants and cafés, large corporates and universities.⁵ According to the FWO, its enforcement actions ‘send a clear message that employers must place a higher priority on ensuring they are meeting their workers’ legal entitlements, and that includes by improving their payroll systems and governance, and investing in advice.'⁶

Key takeaways

The FWO is proactively monitoring compliance with workplace laws and the Bill signals increased scrutiny on pay structures for award-covered employees. It is a timely reminder for employers to review their compliance with modern awards and seek assistance with classification reviews, award interpretation and payroll reviews ahead of potential further legislative reforms.

For assistance with modern award interpretation and payroll compliance, or any workplace law queries more generally, please contact Partner Helene Lee or your regular point of contact within the Dentons Employment & Safety Team.

1. The Hon Amanda Rishworth MP, Minister for Employment and Workplace Relations, ‘Protecting penalty rates a top Government priority as Parliament resumes’, Media Release (19 July 2025), available from <https://ministers.dewr.gov.au/rishworth/protecting-penalty-rates-top-government-priority-parliament-resumes>.
2. Fair Work Ombudsman, ‘Office of the Fair Work Ombudsman Annual Report 2023-24’ (2024), available from <https://www.fairwork.gov.au/sites/default/files/2024-10/office-of-the-fair-work-ombudsman-annual-report-2023-24.pdf> (‘FWO Annual Report 2023-24’). 
3. FWO Annual Report 2023-24.
4. Fair Work Ombudsman, ‘Australian workers back-paid $473 million’ (October 2024), available from <https://www.fairwork.gov.au/newsroom/media-releases/2024-media-releases/october-2024/20241023-annual-report-2023-24-media-release> (‘FWO Media Release October 2024’).
5. Fair Work Ombudsman, ‘Our priorities’ (2025), available from <https://www.fairwork.gov.au/about-us/our-role-and-purpose/our-priorities>.
6. FWO Media Release October 2024.